DSP Mutual Fund is positioning its DSP Healthcare Fund for India's expanding healthcare universe, focusing on contract drug manufacturing organizations (CDMOs), corporate hospitals, and small- and mid-cap opportunities. According to fund manager Chirag Dagli, the ₹3,800 crore fund has delivered over 16% returns in the last one year, with 44.5% domestic smallcap exposure and 9.2% global equity allocation as of August. The fund's top holdings include IPCA Labs, Sun Pharma, Sai Life, Cipla, and Apollo Hospitals. As per The Economic Times, the fund's approach emphasizes bottom-up stock selection and evaluation of business models relative to valuations, with eventual portfolio weights being an outcome of this fundamental analysis process.
Dagli believes CDMO companies could deliver the sector's fastest earnings growth over the next five years as global pharmaceutical companies seek to reduce dependence on China. As reported by The Economic Times, Indian companies are benefiting from this de-risking trend, with non-linear growth benefits driving expansion. The fund manager notes that while other healthcare segments have more linear, stable growth patterns, CDMO companies are positioned to capitalize on the pharma MNCs' strategic shift away from China. According to Dagli, Indian companies have also risen to the opportunity and invested in factories to benefit from it, creating a competitive advantage in this growing segment.
The fund is evaluating hospital expansion plans by corporate hospitals in core markets where they already see increased occupancy in existing facilities. According to Dagli's assessment, filling new beds in established markets should be easier than in new territories. The fund differentiates between hospitals building in newer markets like Bengaluru and Lucknow and those expanding in existing markets based on different valuation multiples due to varying execution risks. Corporate hospitals have demonstrated success in many new markets despite competitive pressures, with the fund noting that pre-Covid, we had only 3-4 listed hospitals; today, we have more than 15, highlighting the rapid expansion in this sector. As per The Economic Times, this growth trajectory reflects the continuous addition of newer businesses to India's healthcare space over the past decade.
Competitive pressures in diagnostics have abated at the margin, with pathology more competitive than radiology due to lower capital intensity requirements. As reported by The Economic Times, the fund has maintained a 5-year view of owning hybrid pathology and radiology laboratories to navigate competitive challenges. While online players have entered the market, they have not scaled operations to the level of established chains, and the fund continues to favor hybrid diagnostics businesses that can sustain growth. The fund's approach emphasizes bottom-up build of the portfolio, with small cap exposure being a result of seeing relative opportunity in SMIDs after having a large-cap skew in 2021.
The fund allocates up to 10% of the portfolio to global MedTech leaders to capture consumption of devices and robotic surgery technologies that Indian companies cannot benefit from directly. According to Dagli's explanation, while Indians consume these technologies, most players are global companies with no Indian equivalents. This international exposure helps diversify the fund's healthcare exposure beyond domestic opportunities, with the fund noting that newer businesses have continuously been added to the healthcare space in India over the past decade, creating a more diverse investment landscape.
